Will the purchased music from an already established iPod/iTunes account be transferred to the iPhone for no additional cost ...
Yes. My understanding is that it works exactly as if you bought another iPod.
Same copy of iTunes = same purchased music.
The "master copy" of each song is always with the iTunes software on your computer, and you can even authorize up to five computers to use that same music with iTunes. It can be synced from any of those five computers to many iPods, since it's all protected by DRM.
The DRM restriction comes in when you want to connect an existing iPod (or iPhone) to different computer. You can only connect and sync if you choose to erase all the mu...